Pension funding gap no problem for top companies, says Scope

A deepening pension funding shortfall is generally not a concern for corporates’ creditworthiness, according to Scope, a ratings agency.

In a statement, it said falling interest rates were largely to blame for the funding shortfall, although it claimed that asset levels were already too low to cover future pension payments before interest rates fell.

“As it is a difficult topic we thought we’d give some more detail about.”

According to Scope, ratings agencies generally count the full balance of unfunded pension obligations as company debt.

Scope, however, includes just two-thirds of the unfunded portion when calculating a company’s adjusted debt if dedicated pension assets can cover annual pension payments for at least the next three years.

If this is possible for the next five years, the balance is halved.

The unfunded pension obligation contributes much less than a company’s valuation to the rating that Scope assigns to the company, which ultimately reflects its probability of default.

Founded in 2002 in Germany, Scope is a relative newcomer compared with more established rating agencies Moody’s, Fitch and Standard & Poor’s.